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In a recent ruling, the Court of Appeal introduced the key legal question this way: 

“What remedies are appropriate for an innocent purchaser of real property when a breaching vendor fails to close? In particular, is the purchaser entitled to claim the profits that the vendor made two and a half years later when the vendor sold the property for $56 million more than its value on the closing date?”

The innocent buyer in this case was Akelius Canada Ltd. (“Akelius”).  In mid-2015 it agreed to buy the seller’s seven residential apartment buildings for a total of nearly $229 million, which was market value at the time.  The deal did not close in January 2016 as planned, because the seller did not remove certain encumbrances.  The seller promptly refunded the $10 million paid as a deposit.

About 2.5 years later, the seller sold the land to a new buyer for $56 million more than the price Akelius had agreed to pay.  After getting wind of the re-sale, Akelius sued the seller, claiming the $56 million in profit was what it had lost due to the failed transaction.

The judge concluded Akelius’ was only entitled to about $776,000 for the costs it had thrown away in preparing for the deal – not the $56 million. The judge referred to the longstanding legal principle that, in an aborted real estate transaction, the customary date for assessing damages is the date set for closing.  Simply because the sellers later made a huge speculative profit did not entitle Akelius to the same amount; it was a long-term investor and was never in the business of flipping apartment buildings for quick capital gains.  

On later appeal, the Court of Appeal confirmed the earlier analysis and conclusions. 

Admittedly, there is some flexibility in the rule that the closing date is the proper one for assessing damages in failed real estate deals. Courts may choose a different date out of fairness, depending on the context. But when they do so, it tends to involve innocent sellers, not innocent buyers. For example, a court might order the defaulting buyer to compensate the blameless seller with added damages, because the failed deal leaves the seller with a hard-to-sell property in a falling market.

But regardless of who is innocent, the rule is still this:  The date of the breach is the starting point for assessing damages, unless the blameless party can satisfy the court that a later day is appropriate. Here, as the judge noted, the innocent buyer Akelius was not a property speculator – it was always intending to hold the seven buildings as a long-term investment.  While it may have eventually sold them for a profit, its own evidence shows it was unlikely to do so in 2018, which is when the seller actually re-sold them.   Akelius’ appeal was dismissed, as was its application for permission to appeal to the Supreme Court of Canada. See Akelius Canada Ltd. v. 2436196 Ontario Inc., 2022 ONCA 259; aff’g 2020 ONSCN 6182; leave to appeal to S.C.C. dismissed 2023 CanLII 566 (SCC).